Exelon Corporation (EXC): How Bad Is This Dividend cut?

The AES Corporation (NYSE:AES) generates, distributes, and transmits electricity to end-customers in 27 countries, hedging itself from any region-specific risk. The company is also investing to expand its capacity in Latin American and Asia, placing itself in a profitable position. It has a strong balance sheet and cash and cash equivalents around $1.9 billion.

The company looks fundamentally well placed, but its dependence on coal and gas for power generation might turn out to be a problem, as clean and renewable source of energy is what consumers are looking for. AES at present is investing in fossil fuel plants to increase its power generation capacity, but the rise in coal prices due to higher demand from emerging markets is putting additional burden on the company.

Moreover, the company has long duration contracts, thus not in a position to transfer escalated commodity costs to its customers. AES also needs to invest in renewable energy to convene with the rigorous regulation standards. The company does not seem to have a smooth road ahead, so staying away from it seems to be the best choice for the investors.

Final Words

Exelon is well placed and currently produces 22% of the US’s nuclear power generation capacity. It will be in a better position to deliver once its expansion plans are complete. The stock prices are currently at their lowest in last nine years and should drop further as short-term investors might be selling off their investments because of the drop in the dividends. The drop in prices should provide a good entry point for long-term investors who are bullish on the company’s future potential. In short, I would say “Investors hold on to your current investments and keep adding more shares if stock prices reduce further.”

The article How Bad Is This Dividend cut? originally appeared on Fool.com and is written by tarun bachhawat.

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